Price Club

Founders · Mar 22

Sol Price: The Founder Who Taught Jim Sinegal, Sam Walton, Jeff Bezos, and Bernie Marcus

Sol Price built it on the Macro model with a $25 annual fee, about 3,000 items and low markups. It had a 7-year head start but Costco and Sam's Club out-expanded it, partly because of a real estate distraction, and it merged with Costco in 1993.

Tips

• Sol Price bet that customers care more about price than selection▶ 37:12Price Club carried about 3,000 items against roughly 50,000 at a typical grocery or discount store, and dealing with 4,500 items costs far less than 50,000.
• Sol Price shared his model so freely that rivals out-executed him with it▶ 48:40Price Club had a 7 year head start on Costco and Sam's Club, yet both out-expanded it.
• Sol Price had the better ideas but Sinegal and Walton executed better▶ 49:53Price Club's 7 year head start disappeared as Costco and Sam's outpaced it.
• Sol Price pushed Price Club into real estate and lost focus on its core▶ 51:28Real estate returns were much lower than returns on Price Club's operating business.
• Sol Price sold to Jim Sinegal because he knew his own weakness was operations▶ 54:00Price Club and Costco merged in 1993 to form the Costco of today.
• Sol Price built each idea by studying niches other entrepreneurs had found▶ 17:00Price Club began as a no frills membership warehouse for small businesses at a $25 annual fee.

Acquired · Sep 13

The Home Depot: How America's aging houses built the best stock of the last 45 years

Its model of selling straight from manufacturers inspired Home Depot. Price blessed Marcus's plan, though Home Depot would carry about 25,000 items against Price Club's roughly 4,000.

Acquired · Aug 21

Costco

Began as a warehouse for small businesses stocking about 3,000 items, then grew through a credit union deal that let consumers in. It took only cash and checks, and its model was copied by Sam's Club and Home Depot.

Tips

• Price Club's warehouse model let suppliers finance inventory, creating cash flow geysers▶ 58:25Costco turns inventory 12.4 times a year versus eight for Walmart and about five for Home Depot.
• Saul Price saw that FedMart earned its margin in the warehouse, not the stores▶ 44:27Price Club stocked about 3,000 high volume items versus roughly 50,000 at Walmart and Kmart.
• A credit union deal opened Price Club to consumers and word of mouth▶ 51:18Consumers were willing to shop from pallets in a warehouse, which the founders had not expected, and the model then expanded to Arizona and beyond.
• Price Club never took credit cards, so Costco never feared losing sales without them▶ 2:00:04Costco makes about 7.5 billion dollars of operating income on 230 billion dollars of sales, so card fees would eat its profit.
• Saul Price shared his playbook openly with Sam Walton and Bernie Marcus▶ 1:06:25Sam's Club and Home Depot both came from Price's openness, and Price Club's Giles Bateman later chaired Costco USA.